Small Bank Financing

[Erick A Nelson]

Hello everyone,

I am just starting out and trying to find ways to finance my deals. I was listening to the Bigger Pockets podcast and in shows 6 and 23, Arthur Garcia and James Vermillion spoke about how they were able to get money from small local banks to get started. My question then is, what am I saying when I get a chance to speak with these loan officers or bank managers?

[Matt Hurley]

You're on the right path! A lot of people try to start putting offers on places before getting their finances in order, it's one of the most important steps other than deal analyzation. 

The biggest hit points you need to know walking into the conversation:

1. Your DTI (debt to income ratio)
2. Your general credit score
3. The type of property you're going to be purchasing

#1: Your total debt will show up on the hard credit pull they do when you apply for a mortgage, don't try to massage the numbers here. They'll know if you're lying. 

#2: This is good to have in general, but it can start the conversation in the right direction. "I have a credit score of 720, what do you imagine my APR will be?"

#3: Financing products differ whether you want either a Single family home, 2-4 unit, or a 5+ unit. There are different products for each type of house, so knowing what you're going to be investing in is relevant to the conversation. 

If you decide to move forward with that lender, they'll do a hard pull on your credit and create a pre-approval that you can use to shop around for houses. This pre-approval is not only important for the offer, but it also give you an idea of exactly what price range you can buy in. No sense looking for properties in the $250k range if you can only get a mortgage for $175k. That being said, if you aren't approved for a lot there are other creative means to get financing using no doc loans, hard money, partners etc but that's a whole other conversation. Plenty of other posts here for that!